BREAKFAST DEALS: Rio castaway

Mining giant Rio Tinto has put its stake in Ivanhoe Australia up for sale after a long, steady deterioration in the share price and a capital raising. Meanwhile, Quickstep has managed to collect some upside for Australia from the Joint Strike Fighter. Elsewhere, Peet has locked away the institutional component of its capital raising, Qantas Airways has tweaked its syndicated loan and Sundance Resources has been smacked around yet again.

Rio Tinto, Turquoise Hill Resources, Ivanhoe Australia

When the big miners collectively shifted from mining boom expansion to focusing on core assets, Rio Tinto’s majority stake in Ivanhoe Australia was already on the chopping block.

Ivanhoe confirmed yesterday that Turquoise Hill Resources, a Rio Tinto subsidiary listed in Toronto, has put the 57.7 per cent stake under a “strategic review”. We all know that means they’re seeing whether they can flog it.

Rio picked up control of Ivanhoe Australia when it secured Ivanhoe Mines, its former partner in the $10 billion Oyu Tolgoi copper-gold project in Mongolia, which has been running into some development and political problems again lately.

While the size of the stake in terms of Rio’s balance sheet is utterly insignificant, the timing is odd, or at least disappointing from the big miner’s standpoint.

In late November, which wasn’t that long ago, Rio contributed $40 million to an $80 million three-for-ten renounceable rights issue conducted by Ivanhoe Australia, not far short of taking up its full rights.

That was an 11 per cent discount. Now the stock is worth half what it was when the capital raising was announced. In the 12 months Ivanhoe stock has plunged 86.3 per cent commodity prices, and perhaps speculation about Rio’s intentions, weighed on the shares.

To some extent Rio can shrug its shoulders and say ’86.3 per cent less of something that’s tiny to us isn’t important’.

Roy Hill Holdings has tapped Decmil Group for a $71 million deal to design the infrastructure.

It follows news from earlier this month that South Korea’s Samsung C&T has won the $5.6 billion construction contract for the project.

Quickstep, Northrope Grumman

With mining giant chairman Jacques Nasser, a former chief executive of Ford Motors, effectively sounding the death knell for the Australian auto manufacturing industry, a small Sydney-based company is showing how Australia can still utilise engineering talent for part manufacturing.

Although not without some irony.

Advanced composites maker Quickstep yesterday announced to the market its largest order for parts for a particular military asset with aerospace giant Northrope Grumman, which has helped boost its total order book for $20 million.

What might irritate some onlookers, particularly aviation experts, is that the military asset is the F-35 Lightning II Joint Strike Fighter.

It’s the same fighter that’s booking massive cost blowouts at defence giant Lockheed Martin and proving to be a pig by comparison to next-generation fighters. It’s the same jet that Australia is buying dozens of.

The JSF is a little more complicated than a Commodore, but the justification for subsidising the local carmaking industry is the surrounding parts makers that will also go out of business if Ford, General Motors or Toyota pull up stake and head to cheaper Asian markets.

The Quickstep deal serves as a reminder than part manufacturing talent can be used outside the automotive sector.

Peet, CIC Australia

Property developer Peet has successfully completed the $116 million institutional component of its $124 million capital raising for the acquisition of CIC Australia.

Bank of America Merrill Lynch led the raising at $1.15 a share, which was at a pretty solid 17.9 per cent discount to the last trading price.

Of that $124 million, $76 million is going towards the CIC purchase, which is at 60 cents a share.

The bidder’s statement went out to CIC shareholders yesterday, where the company pointed out that the offer price represents an 8.3 per cent premium to the volume weighted average price.

That’s a pretty skinny premium and it’s also a 0.8 per cent discount to the last closing price and a 13 per cent discount to the group’s net asset backing as of December 31.

With Guinness Peat Group agreeing to offload its 19.9 per cent stake however, this deal has a good chance of getting up.

Developers have been routinely trading below their net asset backing and in an illiquid stock, this gives shareholders a good opportunity to try their hand elsewhere.

Qantas Airways

Flying kangaroo Qantas Airways has refinanced $430 million of its $1.28 billion syndicated loan facility to April 2017.

The carrier said in a statement to the market that over-subscription allowed them to increase the term loan facility to $550 million from $430 million. The additional firepower will be put towards repaying shorter term debt.

Qantas also said that oversubscriptions have allowed them to secure a new $230 million revolving facility that will mature in April 2017. But this is undrawn and doesn’t impact Qantas’s debt position.

The Australian aviator did a similar move in the second half of last year. This is essentially tweaking the debt position as circumstances allow.

In a sense, it’s just nice to talk about Qantas without mentioning Emirates for once. Oh shucks, I just gone and done it.

Wrapping up

Beaten down miner Sundance Resources copped another hiding from the market yesterday as it looks for another partner for the Mbalam iron ore project between Cameroon and Republic of Congo, or a buyer for the whole company.

The stock finished changing hands at 8.8 cents a share yesterday, which is a staggering discount to the 45 cents that Sichuan Hanlong Mining was offering.

The last word of that sentence however could be surrounded by inverted commas. The stock price might have gone terribly cold, but the company had no choice but to turn Hanlong away to look for a player with a chance of doing a deal.

Meanwhile, The Australian Financial Review believes accounting company WHK Group is planning to delay a profit update, which puts a shadow over its proposed $600 million merger with SFG Australia.

And finally, the Australian Office of Financial Management has sold $1.5 billion in Treasury notes across two tranches.

One billion dollars picks up an average yield of 2.8977 per cent maturing on July 26, 2013. The rest of it will generate a yield of 2.894 per cent maturing on August 23, this year.

Alexander Liddington-Cox

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